401(k) balances up 30%

But Fidelity study also shows that most still contribute far less than allowed, and Baby Boomers are falling short.

By Jeanne Sahadi, CNNMoney.com senior writer

July 25 2007: 11:24 AM EDT

NEW YORK (CNNMoney.com) -- Soaring stocks gave workers' savings a nice bump last year - but the latest numbers from Fidelity do not paint the picture of a cushy retirement.

The median balance for those workers who had participated in their 401(k)s for at least one year rose 30 percent to $32,000, according to a report released Tuesday by Fidelity Investments, which administers plans covering 10 million participants.

What you need to save

For those with 5 years of continuous participation, it rose 20 percent to $59,000. And among age groups, balances for:

Baby Boomers rose 7 percent to $38,000

Gen Xers rose 10 percent to $15,000

Gen Yers rose 21 percent to $2,100

The increase in balances came both from rising asset values and contributions from workers and company matches.

The average contribution rate for Baby Boomers, was 7.7 percent, just a little above the 7 percent overall average. And even though they are next on deck for retirement, one in three eligible Baby Boomers weren't participating in their 401(k)s at all.

Among participating Gen Xers, the average contribution rate was 6.2 percent. And among Gen Yers, it was 4.6 percent, but two out of three eligible Gen Y workers don't participate at all.

One of the ways found to increase 401(k) participation and savings is automatic enrollment, in which case the employer begins deducting funds from workers' paychecks unless the worker opts out.

Fidelity found that last year 200,000 employees - double the number from 2005 - had been automatically enrolled in their 401(k)s. Plans with auto enrollment features had an average participation rate of 81 percent, far more than the 51 percent participation rate of plans without them.

Fidelity also noted that three-quarters of participants' portfolios weren't diversified enough. Twenty-two percent of all participants had all of their 401(k) money invested in stocks, while 13 percent had no money invested in stocks.

Typically, the younger you are the more you should be invested in stocks and the less you should be invested in bonds. (401k flubs - 5 to avoid)

Of the record $16.4 trillion held in retirement assets in 2006, 51 percent are held in defined contribution plans and IRAs, according to the latest data from the Investment Company Institute. The plans that Fidelity administers account for $674 billion in assets.

With defined benefit pensions on the wane, and longevity on the rise, the need to save more for a potentially long retirement has been growing in the past 20 years.

A husband and wife, each 65 today, have an 80 percent probability of one or both living to 85 and a better than even chance (58 percent) of one or both living past 90, according to a statistical analysis by Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries.